So, do we bounce? And if we do, will it just be a snap back rally that fails and we plunge further? These are the questions we have to ask:
We won't know the answers until it unfolds this week. Lots of earnings coming but the State of the Union address might be why a snap back fails. N'Obama has demonstrated that he will play dirty a la Chicago style politics and try to ram through his agenda. What he fails to recognize and why we will eventually rally big is he no longer has the clout.
So, we'll participate in the bounce, if it comes (Index Futures are up so far) but pull the rip cord if or when the bounce hits resistance/fails at the 50ema (almost all the charts show the 50 day moving average did not hold whether it is the SPX Index or an individual stock).
So, we might snap back 20 SPX points to 1110, find the 50ema as resistance and fall back or trade sideways/churn until the Union address only to fall to 1042 on the SPX, the 200 day moving average.
If N’Obama pivots and shows a retreat to the centrist politics many wrongly expected from him in the beginning, then we could rally all the way back to 1150. I doubt it but I will ride it, if it comes.
China? That was good news, they are controlling the reins on their hot economy…no two ways about it, its a sell off excuse. Many Big money managers got the excuse to take profits, stand aside until the dust settles and see if they can buy lower. They took in some 1-3 yr T bills this week and are happy to sit until the churning is resolved, expecting to buy @ 1050 on SPX. We are not going to get in their way. If they pivot upon a White House pivot, ye ha baby.
Bottom line? The uptrend is intact, we have a 5% correction that might go 10%. More than that means we are broken and the bull is at risk. That fundamentally is just wrong unless the White House or terrorists really screw things up royale.